On Tuesday, the U.S. Senate voted 76-16 to pass a bill that extends the wind production tax credit (PTC), as well as a slew of other tax breaks, through the end of 2014. The tax extenders package had passed in the House of Representatives on Dec. 3, and President Barack Obama is expected to sign the bill into law shortly.
However, the U.S. wind industry and fellow advocates say the one-year retroactive PTC renewal does little to help the sector and extends damaging uncertainty, as it gives wind developers less than two weeks to start construction on projects in order to qualify for the $0.023/kWh incentive. The bill also extends through the end of 2014 a developer's option to choose a 30% investment tax credit in lieu of the PTC.
The tax extenders package – H.R.5771, or the Tax Increase Prevention Act of 2014 – pales in comparison to the EXPIRE Act, a Senate bill that would have provided an extension through the end of 2015 but stalled back in May. It also falls short of a promising two-year deal recently made between House and Senate leaders, but Obama threatened to veto that agreement due to concerns that it favored corporations over low-income families.
Although most legislators considered H.R.5771 a must-pass measure before Congress adjourned for the holidays, some lawmakers have spoken out against the last-minute resolution.
For example, Senate Finance Committee Chairman Ron Wyden, D-Ore., who headed the push to pass the aforementioned EXPIRE Act, voted against the new bill on Tuesday.
"With this stop-and-go tax extender bill, Congress is turning in its tax homework 11 months late and expecting to earn full credit," he said on the Senate floor, later adding, "This tax bill doesn't have the shelf life of a carton of eggs."
Sen. Michael Bennet, D-Colo., also voted against H.R.5771, as well as took a stand for wind power. According to a report in The Hill, Bennet called the bill "another low point in the world of dysfunctional Washington politics."
"Waiting until now to extend the wind PTC – and only for two weeks – generates nothing but more uncertainty for these businesses that employ thousands of Coloradans," he said.
Glass half empty
Advocacy groups and industry experts also have expressed disappointment and raised concerns about the bill.
"Congress' failure to pursue a real solution has again sabotaged the growth of the wind industry and put tens of thousands of wind manufacturing jobs at risk," says David Hamilton, director of clean energy for the Beyond Coal Campaign at The Sierra Club, in a statement. "Our clean energy industries need certainty."
The American Wind Energy Association (AWEA) previously deemed H.R.5771 worthless, warning that the wind industry needed at least a two-year extension in order to avoid job losses and a halt in new installations.
Gregg Benson, tax counsel at law firm Kaye Scholer, agrees that a two-year extension would have better served the wind industry.
"The downside is that this retroactive one-year extension through the end of 2014 does not provide the type of long-term certainty that many in the wind industry were hoping for," he says. "If the extenders bill provided for a two-year extension of the PTC â�¦ we likely would have seen an increase in new wind energy investment and a surge in wind energy projects being commenced in the coming year."
Glass half full
"I am more of an optimist, I guess, than AWEA," says David Burton, partner at Akin Gump Strauss Hauer & Feld. "I think there are parties that benefit from this extension."
According to Burton, such beneficiaries include wind developers that had meant to meet the 5% safe harbor at the end of 2013 but didn't have enough funds.
"Such developers persuaded the [Internal Revenue Service (IRS)] they should be able to prorate their projects' tax credits, so long as they spent at least three percent (e.g., spending 3.5 percent would result in eligibility for 70 percent of the tax credit) in 2013," he explains. "Those developers now have an additional year of spending and may meet the five percent safe harbor and qualify for the safe harbor for full, rather than prorated, tax credits."
Burton says H.R.5771 would also provide extra time to developers whose projects are slated to be placed in service at the end of 2015 but then might face an unexpected delay.
"A 2016 completion date would have meant missing the 2015 deadline necessary to avoid IRS scrutiny of their compliance with the "continuous' standard," says Burton. ‘Such developers now have until the end of 2016 to complete their projects (assuming the IRS interprets Notice 2013-60 as we expect), so they should have an easier time raising capital given the additional year of cushion."
Benson says developers who gambled this year would also benefit from the renewed PTC.
"To the extent that developers were betting on some sort of retroactive PTC extension for 2014, such that they started construction on a project earlier in the year, their bets may have paid off," he says.
Furthermore, under H.R.5771, wind developers will have to "start construction" on their projects by the end of the year in order to qualify for the PTC. The "start construction" standard means that a wind developer must either incur at least 5% of the project cost or begin significant physical work.
Developers will only have less than two weeks to meet the standard. Nonetheless, Burton says some companies are rushing to qualify before the looming deadline.
"As we speak, our firm is reviewing construction contracts in order for developers to try and get some road built, for example, or turbine sites excavated before the end of the year," he says, noting that developers began reconsidering their options right after the House passed H.R.5771 earlier this month.
Although Congress has announced plans to tackle comprehensive tax reform in 2015, Benson says it is difficult to predict whether the effort will produce results, while Burton believes Congress will most likely end up repeating 2014, with legislators rushing at year-end to do another tax extenders package.
Regardless, AWEA seems determined to keep fighting for the PTC in 2015.
"The inclusion in this year's tax extenders bill is a reflection of the continued bipartisan support for wind energy," says Tom Kiernan, the association's CEO. "When the 114th Congress begins, clean energy incentives will already be expired. There will be a lot of work to do as soon as possible in the new year to keep this important sector of the economy growing by providing longer-term policy support."
Meanwhile, Burton says there remain some factors that will continue to help drive the U.S. wind industry, such as the Environmental Protection Agency's upcoming Clean Power Plan, an expected rise in natural gas prices and wind turbine technology advancements.
Nevertheless, he emphasizes, "The PTC is still critical."